IPL 2014 April 2, 2014

IPL teams face hit in sponsor revenue

With just two weeks left for the start of the IPL, many franchises are yet to finalise deals with sponsors. Kings XI Punjab, Delhi Daredevils, Sunrisers Hyderabad, Rajasthan Royals and Royal Challengers Bangalore are understood to be the five franchises that have been unable to close deals, including finding a front-chest sponsor, a valuable space where the brand is most prominently displayed on the shirt front.

Brand experts predicted a "tough year", claiming the franchises will suffer a deep cut of 20% in their sponsorship revenues, which will be exacerbated by the loss in ticket revenues as a result of the first phase of the tournament being played in the UAE.

Uncertainty over the venue for the second-half of the IPL, the economic slowdown, clash with the federal elections, and the controversies that have emanated from the corruption scandal during last year's IPL are factors that have affected sponsorships.

According to Mohit Burman, one of the Kings XI owners, as soon as the IPL announced the first 20 matches would be played in the UAE, sponsors sent a warning signal. "One of our sponsors, Lux Cozy, decided to not renew a three-year deal," Burman said. "They pulled out immediately. This year is sort of a mess. The uncertainty over the venues did hamper us. First they said it could be one of - or a combination of - South Africa, UAE and Bangladesh as the overseas venue due to the elections. Now we still do not know where the second part will be held. As it is, the market is soft, and due to the recent controversies it has had an impact on the franchise costs."

"The gate money would be reduced, the sponsorship would be reduced, there are fewer teams so the central revenue would be also be reduced"
Mohit Burman, co-owner of Kings XI Punjab

Burman agreed that the overall revenues this season will be significantly lesser than previous seasons. "The gate money would be reduced, the sponsorship would be reduced, there are fewer teams so the central revenue would be also be reduced."

According to a franchise chief executive, the enthusiasm among sponsors for the IPL is not the same as it was in the first five years. "It is very difficult to get sponsorships. The IPL has taken a big beating. Everybody is negotiating - there is a massive decrease in sponsorship costs," the franchise CEO said. This CEO said he had been trying to close deals over the past month but the sponsors, mainly local, were not keen.

Yet, the CEO remained optimistic. "We are in advance talks with a bunch of people. [But] the market has been bad," he said. According to him, during the last meeting the IPL had with franchises in Chennai last month, they were told that a definite schedule would be announced in a few weeks. "The second-half schedule has not come in yet. People are still waiting. If somebody wants to spend big bucks would they just bet blindly? So you need a schedule to plan the stuff, budget depending on where the matches are."

The front-chest sponsorship is worth anywhere between Rs10 crore ($1.67m) to 20 crore per season. Muthoot Finance did not renew their three-year contract with Daredevils; Ultratech Cements brought to an end a long-running relationship with Royals; and Kings XI, who had two different sponsors after Emirates pulled out in 2011, is understood to have failed to find a sponsor for even one of the six advertising slots available on a team shirt.

According to the CEO the local sponsors' biggest challenge is building brand engagement when matches are set to be held overseas. "Say some of my home matches are being played outside due to the clash of the elections, my sponsor today is not sure whether he wants to advertise outside. It is not about the TV logo anymore. It is also about activating in the local market," he said. "This is becoming ridiculous. I hope they release the [final] schedule."

Brand experts agree it is going to be a gruelling summer for franchises with an estimated minimum cut of 20% in the sponsorship costs. "That is a serious cut. Moreover there will also be impact on the gate revenues with the first phase being played overseas. It is going to be a tough year," said Vinit Karnik, a top official at GroupM ESP, media planning agency.

Karnik said had predicted a year ago that sponsorship costs were likely to go down, and not because of the scheduling issues. "This is a peculiar year. When IPL started in 2008 most of the franchises had inked three-year deals and some had signed five-year contracts with sponsors. Most of the big deals were for three years, which got renewed for another three years and re-opened in the seventh year. The five-year deals were extended by a year. So the seventh year [2014] was the year of a lot of supply, where most of the franchises' deals were up for renewal. It is a typical demand-supply situation. If there are eight teams and there are on an average six to eight assets [sponsors] it means about 50-60 assets open in the market."

Nagraj Gollapudi is an assistant editor at ESPNcricinfo